Tag: expenditure

Government departments and state owned enterprises (SOE) have accumulated irregular expenditure exceeding R72.6-billion.

This is according to an analysis undertaken by the official opposition party, the Democratic Alliance (DA), which has since been reported on by Fin24. The party held a media briefing on Sunday, citing the 2017/18 annual financial reports released by government departments and SOEs.

What is irregular expenditure?
Simply put, irregular expenditure is a term used to describe the gross mismanagement of funds, particularly within the realm of governmental departments and state entities.

Technically, any costs involving state funds which fall outside the parameters of the Public Finance Management Act can be described as irregular expenditure. This wanton wastage of funds is a particularly painful thorn in the side of South Africa’s already uneasy economy, further embittering taxpayers as their hard-earned cash, effectively, goes to waste.

DA says total irregular expenditure could be much more
Natasha Mazzone, the DA’s Shadow Minister of Public Enterprises, addressed the media briefing, adding that not all government departments and SOEs had finalised their financial reports, meaning that the actual amount of irregular expenditure could be much higher.

The official opposition party pointed out that irregular expenditure stood at R42.8 billion last year. This year, that amount has increased by 70%.

Mazzone bemoaned the unsustainability of SOEs, adding that despite revitalisation strategies, most companies still remain wholly incompetent and reliant on government bailouts, saying:

“SOEs are going from one bailout to the next, one disaster to the next. It’s got to a point where it doesn’t matter who you put in the boards because the entities are so broken, it is almost impossible to fix.”

Government irregular expenditure: the main culprits
The DA made its report on the government’s irregular expenditure public, listing, in order, the entities which have recorded the greatest losses.

Here are the top wasters of public funds:

Eskom – 19.6 billion

South African National Roads Agency (SANRAL) – R10.5 billion

Transnet – R8.1 billion

Department of Water and Sanitation – R6.2 billion

South African Broadcasting Corporation (SABC) – R5 billion

Water Trading Entity – R4.9 billion

Department of Correctional Services – R3.2 billion

Property Trading Management Entity (PTME) – R2.3 billion

Department of Basic Education – R1.7 billion

Department of Defence – R1.7 billion

Department of International Relations and Cooperation (DIRCO) – R1.2 billion

Eskom suffered a net loss of R2.3bn in 2018, compared with a R0.9bn profit the previous year, the state-owned power producer revealed at its financial results presentation on Monday.

CEO Phakamani Hadebe said the poor results were compounded by allegations of corruption and mismanagement, challenges of governance and negative investor sentiment.

The power utility said its net cash from operations declined from R45.8bn to R37.6bn, as it struggled with leadership and operational challenges.

Eskom Chair Jabu Mabuza also said there had been R19.6bn in irregular expenditure since 2012, with much of the irregular expenditure being reported in 2018.

“This was a result of us shaking the cupboard so hard that so many skeletons came tumbling down,” he said.

“The verification and cleaning up exercise resulted in a significant increase in the number of reported irregular expenditure in 2018 (from R3bn to R19.6bn), with many of the items reported arising in prior years. Where information was not readily available, alternative methods were used where practical to identify irregular expenditure,” the utility said.

The power utility admitted that its “transition towards financial and operational sustainability required resolute, tough and decisive leadership”.

Its liquidity remained a going concern, with a massive R4.2bn owed to it by municipalities.

“Eskom continues to face significant financial and liquidity challenges in the short term, mainly due to the high debt burden, low sales growth and increased finance costs”.

Eskom debt has increased from R387bn to R600bn withing four years, but steps have been taken by the board to boost investor confidence, Hadebe said.

“We have raised 22% to date of [the] R72bn borrowing requirement for 2018/19, and have a firm commitment to increase funding to 62% of the 2018/19 borrowing requirement.” He said growing investor appetite for Eskom bonds was a concern.

The power utility, which has been hit by leadership challenges, is battling a long-standing financial stability crisis, including a debt of R13.5bn owed to it by a number of municipalities.

In March, Moody’s downgraded Eskom’s credit ratings from B2 from B1, citing an absence of concrete plans to place its business on a sound financial footing. B2 is the fifth rung of sub-investment grade debt.

The current wage demands by unions are also adding to the firm’s financial woes, with labour unions currently discussing Eskom’s latest options of 7% and 7.5% increases, which were tabled after a round of bruising negotiations.

The firm initially offered no increases, citing its difficult financial position. Eskom and the unions were drawn to the negotiation table by Public Enterprises Minister Pravin Gordhan in a bid to avert a crippling strike by workers.

In June, the National Energy Regulator (Nersa) has approved R32.69bn for Eskom’s multi-year price determination Regulatory Clearing Account (RCA) applications – funds Eskom must recover due to an electricity shortfall or an escalation in operating costs.

Government welcomed the signing of a three-year multi-term Public Service wage agreement, although it exceeded the 2018 Medium Term Expenditure Framework by R30bn.

According to the Department of Public Service and Administration, the R110bn provision for the salary adjustments for the period from 2018/19 to 2020/21 was made in the 2018 Medium Term Expenditure Framework (MTEF).

“The 2018 salary agreement exceeds this amount by R30 Billion over the Medium Term Expenditure Framework,” the department said in a statement.

“This then calls for cost containment measures to ensure that the wage bill remains within the existing compensation ceilings,” it added.

The Public Service Coordinating Bargaining Council (PSCBC) last week said 65.74% of trade unions had agreed to salary adjustments and improvements on conditions of service in the sector for three years, from 2018/19 to 2020/21.

For 2018/19 level 1-7 workers agreed to a 5.5% CPI linked increase, plus a 1.5% , the pay would then be hiked by a CPI related rate for the next two year, with an additional 1%.

Government said the agreement was reached after “a long and difficult negotiations process”.

Employees in the level 8-10 scale would get a CPI rate plus 1% for the current year, followed by 0.5% for the next years, while those in the level 11-12 bracket would receive an increment of 0.5% for this year on top of the CPI. The highest grade will only get a CIP rate for the following year.

Also included, is that the housing allowance of R1 200.00, which would be increased annually by the average CPI of the preceding financial year on an annual basis.

The country’s bulging public wage bill has been a major source of challenge raised by international lenders and rating agencies.

“As government we are glad that we have reached another multi-term agreement,” said Minister of Public Service and Administration Ayanda Dlodlo.

She stressed that the negotiations took place amid growing concerns over the escalating public service wage bill and a contracting economy, which pose serious challenges to the already strained government fiscal purse.

“The agreement proves that it is possible for both parties to reach an amicable agreement that puts the stability of the country and service delivery first.”

The adjustments will be effected on the 1st of July of each year.

Discussions reached a deadlock earlier this week, with the Public Servants Association (PSA) demanding a 12% wage increase across the board. Government offered a 7% increase for lower level workers, 6.5% for mid-level employees and 6% for senior managers.

Stats SA has released a complete overview of total government spending for 2015/16, providing insight into where your tax contributions have gone.

The report found that total government spending amounted to R1.52 trillion in 2015/16 – an average of R27,600 per person if we consider South Africa’s population of 55 million people.

Compensation of employees contributed 40.6% of the R1.37 trillion, the largest expenditure item in economic terms. The second largest item was purchases of goods and services, contributing 21.9%.

According to the latest Financial statistics of consolidated general government report, general services accounted for a quarter of government spending in 2015/16. Within this, debt payments accounted for 9% (of the total) and executive, legislative and financial services accounted for 12%.

The latter includes the funding of general government services provided by institutions such as SARS, the National Treasury, the Auditor-General of South Africa (AGSA), the Financial and Fiscal Commission (FFC), parliament, and the various legislatures.

Not surprisingly, big priorities for government also include education and social protection (which includes the payment of social grants). Together these two items contributed 32% of total spending.

Government also spent more money on servicing its debt than it did on items such as housing, police, tertiary education and hospital services. Almost R129 billion was spent on public debt payments in 2015/16. In 2011/12, it was 7.2%, rising in 2012/13 (7.4%), 2013/14 (7.8%) and 2014/15 (8.4%). In 2015/16 it rose only slightly to 8.5%.

An evaluation of those annual reports submitted to Parliament by national departments and their entities have revealed that R51.1 billion was wasted in the 2016/2017 financial year as a result of irregular, fruitless and wasteful expenditure.

Entities were the biggest offenders, accounting for nearly R35.9 billion, or R70%, of the total.

This staggering amount is sure to increase as the departments of Environmental Affairs, Defence, and State Security have still not tabled their annual reports. Similarly, South African Revenue Service, South African Airways, South African Express, South African National Roads Agency, and Passenger Rail Agency of South Africa have not finalised their annual reports.

Audit results of departments and entities were once again dismal with no fewer than 22 outstanding audit reports, as well as a litany of disclaimed (3), adverse (4) or qualified (28) audit opinions. More than 20% of all audits were either outstanding or failed to meet accounting standards.

Concerningly, the Auditor-General (A-G) raised “going concern” issues with the following entities: Independent Police Investigative Directorate (IPID), the National Health Laboratory Service, PetroSA and the South African Broadcasting Corporation (SABC). The A-G could not provide audit opinions for either the Unemployment insurance Fund or the Compensation Fund.
National departments once again failed to meet their own targets with key ministries among the worst performing:

Similarly, key entities are among the worst performing:

South Africans run the risk of becoming jaded by the governance failures of the ANC government. However, we must never lose sight of the opportunities lost by the R50 billion squandered through irregular, fruitless and wasteful expenditure.

Governance failures come at a great cost to South Africa’s most vulnerable. We cannot rest until every valuable resource is directed at improving the lives of honest, hardworking South Africans.